Student Internship reported on 1099 MISC

[Hal_Al]

No offense taken

Your concerns are frequently expressed in your situation.  Because the 1099-MIsc was issued there is no way to avoid a red flag at the IRS, except to report it as unearned income (the1099-Misc is used for reporting unearned income).  I think fiddling with the 8615 worksheet is a bigger red flag, as well as reducing the student's standard deduction

The technique described above (repeated below), to enter a negative offset, is frequently recommended, in this forum, when a 1099-Misc is erroneously issued, not just in stipend situations.  But I don't think it's necessary in your situation. 

_____________________________________________________________________________________________

If you're concerned about the 1099-Misc not showing up on the tax forms, there's a workaround for that.  But, it's not necessary. 

Report the scholarship income, on Schedule 1, line 8r.  Enter as previously described.

Then also  report the 1099-Misc as other income, line 8z, Schedule 1 income (enter in TurboTax at the 1099-Misc screen). Then enter an offsetting line 8z deduction, for the same amount.  In TurboTax (TT), enter at:
- Federal Taxes tab
 - Wages & Income
Scroll down to:
-Less Common Income
      -Misc Income, 1099-A, 1099-C
       - On the next screen, choose – Other reportable income -  Answer yes to Any other Taxable Income

         -On the next screen, Enter the number with a minus sign (-) in front.  Briefly explain at description, e.g.    "1099-Misc reported as scholarship"

[Hal_Al]

AI answer to google search for are stipends taxable:

How you report a stipend depends on your relationship with the payer:

• Employees: Taxable stipends are often reported on a Form W-2 in Box 1. Employers typically withhold income, Social Security, and Medicare taxes from these payments.
• Non-Employees/Contractors: Payers may not withhold taxes. If the amount exceeds $2,000 in 2026 (increased from $600 in 2025), you may receive a Form 1099-MISC or 1099-NEC.
• Students: Taxable portions not reported on a W-2 should be reported on Form 1040, Schedule 1, Line 8r as "Scholarship and fellowship grants".
• International Recipients: Nonresident aliens are usually subject to a 30% withholding rate (which may be reduced by tax treaties) and receive Form 1042-S

[Jakeado]

Thanks. 

I hear what you are saying about the red flag but truth be told the income is so low that as long as it is considered earned income, this student arguably wouldn't even have to file, let alone get hit with the kiddie tax. In fact, the student in question is a triplet and his brother got a W-2 for his internship and there are no problems at all.  Additionally, had they sent nothing at all instead of this 1099 MISC it would also be easier to enter as earned income! 

[Jakeado]

I assure you I have done multiple google searches in hundreds of ways at this point. As previously noted, not only does the situation not fit the definition of a scholarship (was not meant to pay for school) but even with the wording you have there, once a 1099 MISC is issued it negates the next line in my view.  I truly wish I could be comfortable suing it that way.   I have gone so far as to read the legal statues and as much IRS documentation as I can. I give you this as one example of many from Cornell Law: 

26 U.S. Code § 117 - Qualified scholarships

(a)General rule

Gross income does not include any amount received as a qualified scholarship by an individual who is a candidate for a degree at an educational organization described in section 170(b)(1)(A)(ii).

(b)Qualified scholarship For purposes of this section—

(1)In general

The term “qualified scholarship” means any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses.

(2)Qualified tuition and related expenses For purposes of paragraph (1), the term “qualified tuition and related expenses” means—

(A)

tuition and fees required for the enrollment or attendance of a student at an educational organization described in section 170(b)(1)(A)(ii), and

(B)

fees, books, supplies, and equipment required for courses of instruction at such an educational organization.

(c)Limitation

(1)In general

Except as provided in paragraph (2), subsections (a) and (d) shall not apply to that portion of any amount received which represents payment for teaching, research, or other services by the student required as a condition for receiving the qualified scholarship or qualified tuition reduction.

(2)ExceptionsParagraph (1) shall not apply to any amount received by an individual under—

(A)

the National Health Service Corps Scholarship Program under section 338A(g)(1)(A) of the Public Health Service Act,

(B)

the Armed Forces Health Professions Scholarship and Financial Assistance program under subchapter I of chapter 105 of title 10, United States Code, or

(C)

a comprehensive student work-learning-service program (as defined in section 448(e) of the Higher Education Act of 1965) operated by a work college (as defined in such section).

[Jakeado]

If I weren't using a computer program, I would report this 1099 MISC under "other income" (Line 1h of the 1040).  Then like in the old days, the 1099 MISC would be mailed in and would not have further information about how this job was structured and completed. How would that be wrong? 

[Hal_Al]

You are correct; if his total eared income is less than $15,750, he does not even need to file a federal return. 

Someone who can be claimed as a dependent must file a tax return for 2025 if he had any of the following:

1. Total income (wages, salaries, taxable scholarship etc.) of more than 15,750 (2025).
2.  Unearned income (interest, dividends, capital gains, unemployment, taxable portion of 529 distribution) of more than $1350.
3. Unearned income over $450 and gross income of more than $1350.
4.  Household employee income (e.g. baby sitting, lawn mowing) over $2600 ($17,750 if under age 18)
5.  Other self employment income over $432, including money on a form 1099-NEC

[Hal_Al]

Q. If I weren't using a computer program, I would report this 1099 MISC under "other income" (Line 1h of the 1040).   How would that be wrong? 

A. I don't know. Line 1h of form 1040 is relatively new (2022). There's been very little discussion in this forum. Nor have I read anything about how the IRS is reacting to income reported there.   The 1040 instructions show some items (odd stuff) that should go there. See pages 24-25 at https://www.irs.gov/pub/irs-pdf/i1040gi.pdf.  

I would think the main concern is that most earned income is compensation and social security and Medicare tax should also be paid (like your triplet who got a W-2 for similar work).

Thanks for the Cornell law references. I've found them to be an excellent source on taxes, in general.  I find that their definition of "qualified scholarship", for our purposes, only means tax free scholarship.  Money provided for other academic  needs  (e.g. room & board) can still be a "scholarship", just a taxable one, rather than tax free ("qualified scholarship").  See page 5 of pub 970 (https://www.irs.gov/pub/irs-pdf/p970.pdf) for definition of scholarship or fellowship grants. 

[DAD66]

Thanks for this. For the record, it does seem if I went the scholarship route that still goes in as unearned so it wouldn't solve, my problem anyway? And the issue with not filing is that if this 1099 MISC is truly unearned, they would have to file! 

Ugh. I can only edit this comment and not delete it. I have two accounts (parent and son) so this reply is going under a different account even though I have signed out and back in under Jakeado! it's still me. 

[Jakeado]

Okay so I figured that out and I will add the son and daughter these questions are for are Cornell students so perhaps that a bias there too. 

And it's fine if they are subject to the medicare taxes etc, (they are exempt for their university jobs) because if I use 1h (which of course the list in the instructions is quite limited and non refer to internships or anything close), then then still owe nothing because the standard deduction goes up significantly based on total income and zeroes out. Thanks for the engagement. I will figure this out sooner or later.